Gold Price Forecast: XAU/USD traders cash in, kicking off the Fed week
- Gold price extends pullback from three-month highs of $2,786 early Monday.
- Pre-Fed profit-taking and Trump’s trade war-led US Dollar resurgence weigh on Gold price.
- Gold price tests symmetrical triangle target at $2,785 or record highs, where next?
Gold price is retreating further from three-month highs just shy of the all-time peak of $2,790 early Monday. Gold buyers turn cautious heading into a big week, with the central focus on US President Donald Trump’s trade policies and the US Federal Reserve (Fed) policy announcements.
Gold price pulls back before the next leg up
That said, Gold traders resort to liquidating their long positions to take profits off the table as the bright metal fell a thread line short of the record highs. Further, repositioning ahead of the Fed event risk also remains a weight on the Gold price.
Additionally, resurgent demand for the US Dollar (USD) as a safe-haven currency following mounting fears of a global trade war capped the upside in the USD-denominated Gold price.
On Sunday, President Trump slapped a 25% tariff on all Colombian imports, which would be escalated to 50% in a week after the South American country refused to allow two military planes carrying deported migrants to land as part of the new US administration's immigration crackdown. Colombia’s President Gustavo Petro threatened his own 50% tariff hours later.
Meanwhile, the Wall Street Journal (WSJ) carried a gated report on Monday, citing that US President Trump’s advisers want to impose 25% tariffs on Mexico and Canada as soon as February 1. An unnamed 'senior administration official' in the report said Trump is willing to move quickly, citing the President’s imposition of tariffs on Colombia.
An unexpected contraction in China’s manufacturing sector contributed to the risk-off market environment. The January official purchasing managers’ index (PMI) came in at 49.1, the National Bureau of Statistics (NBS) said on Monday, missing the estimated reading of 50.1.
Later in the day, Trump’s tariff plans will continue to drive risk sentiment, eventually impacting the Greenback and the Gold price without top-tier US economic data releases.
On Friday, Gold price rally extended and buyers almost tested the lifetime highs of $2,790 as the USD got slammed across the board following the release of downbeat US S&P Global preliminary business PMI data.
The preliminary US Composite PMI Output Index, which tracks the manufacturing and services sectors, declined to 52.4 in January, hitting the lowest level since April and was significantly down from December’s 55.4.
The US PMI data added to the recent slew of dismal statistics, reinforcing bets for two Fed interest rate cuts this year and rendering negative for the Greenback.
Gold price technical analysis: Daily chart
The daily chart shows that the short-term technical outlook remains constructive for Gold price despite the latest retracement from near a record peak.
Gold price achieved the symmetrical triangle target, measured at $2,785 on Friday but failed to yield a daily candlestick closing above it, which prompted buyers to turn on the sidelines.
Gold price charted a symmetrical triangle breakout earlier this month.
The 14-day Relative Strength Index (RSI) has turned lower after prodding the overbought region, currently near 65. The leading indicator suggests that Gold price remains a good dip-buying opportunity.
Adding credence to the bullish potential, the 50-day SMA closed above the 100-day SMA on Thursday, confirming a Bull Cross.
Gold price must seek a daily closing above the record high of $2,790 to set a new highest level ever above $2,800. Buyers will then aim for the $2,850 psychological level.
However, if the Gold price correction extends, immediate support will be seen at the January 23 low of $2,736.
Sellers will then aim for the $2,700 round level, below which the 21-day SMA at $2,686 will come into play.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
